Minimum Wage Truth

The truth must be known to all concerning the effects of a mandated minimum wage.  When the government, at any level, establishes a minimum wage it is showing its complete ignorance of market economics at best, or showing supreme arrogance at worst.  The wage paid in return for labor should be of equal value to the labor performed.  If a worker does work that contributed $7 to the employer, why should the employer be compelled by law to pay a higher price?

Our government has an abysmal record of correctly “guessing” the value of anything.  There record is exactly no correct guesses and ALL incorrect!  The reason for this 0% success record is simple – the market determines the price accurately, without fail, and every time based on the relative valuations of both buyers and sellers.  The government is neither a buyer or seller; but merely a bystander when it sets most price floors and ceilings.  Minimum wage is no different than any other government intrusion in the market system – it results in inefficiencies and higher prices paid by consumers.

An employer only has so much money to spend on employment costs while still being able to make a profit at any given output and market price.  When the government mandates an increase in wage, those costs go up but the production remains the same.  What is an employer to do?  Raise prices, reduce the number of employees, or cut corners by reducing quality, are all possibilities.  Why do government officials fail to see the correlation between wage and productivity?  If the worker becomes more productive, the employer will almost certainly offer an increase in wage to retain the worker who can manage that increased productivity.  I always did that for my employees, AND I always paid them more than the minimum wage.

Who is being paid the minimum wage?  The least productive among us are being paid the minimum wage.  Why is that?  Because the more productive workers find jobs in which they produce higher valued output and are therefore being rewarded for their productivity with a higher wage or other additional compensation.  Why does the government want to increase minimum wage?  Because doing so acts a type of transfer payment from the more productive to the less productive workers and the politicians hope to win the votes of those less productive workers.  It is nothing more than a form of buying votes with somebody else’s money – yours and mine!

How long will this foolishness last?  It will continue as long as the average person remains or acts ignorant of the most basic laws of economics; supply and demand.  Think about it.  Prices aren’t arbitrarily chosen.  Prices are a result of the willingness and ability of the buyer to obtain a good and the willingness and ability of the seller to produce it and let it go at a price that is profitable.  If it was not a fair price, buyers would want less or none of it.  If the price were too low, sellers would offer little or none at all for sale since there would be no profit.  Why is that so hard for the educated men and women in our Congress and State Assemblies to understand?  Your guess is as good as mine.  My suspicion is that they really do know or understand the basics of economics; but they willfully ignore that knowledge in place of a more practical reality – staying in office depends on votes and I can buy those votes with the money of others.  Yes, these are the sorry politicians our system breeds.  They are not patriots; they are looters who once elected see the personal gain of holding office and then seek reelection to further increase their personal gain!  Throw out those bums who vote to spend other people’s money to benefit a small group of citizens rather than society as a whole.  They are easy to spot since very few of them are fiscally responsible!  Sadly, the looters are the rule rather than the exception.  Conservative citizens need to turn that situation around.  Recruiting, educating, and electing fiscally responsible Senators and Representatives is our only hope for recovery.

The Real Role of Government in a Free Society

Government is many things to different people and various levels of government exist to serve the various needs of society.  However, the real role of government is best summed up as doing only for the people what the people cannot do on an individual basis.  That statement appears to be open-ended and allows for any level of government to expand into almost every activity involving one or more members of a society.  Fortunately for theUnited States, the role of the federal government is strictly defined in our Constitution as being a powerful but limited government.  The Constitution also defines the concept of checks and balances on the government.

The premise is that rights are accrued upon individual persons as natural rights, endowed by our Creator, and listed in the Declaration of Independence as the right to life, liberty, and the pursuit of happiness.  Authority is vested in these rights as one has the authority to protect one’s rights.  For any level of government to have any authority over its citizens, the citizens must first cede that authority to the government.  The people must authorize the government to govern them.  The people cede some power to the local and state governments and the state governments cede some power to the federal government under our Constitution.  The majority of the authority remains with the people as the government entities were created by the people to serve the people and not the other way around!

To serve a free society and to promote economic growth, all levels of government need to protect the property rights of the individuals, provide for our common defense, and establish courts under which the rule of law can be withheld.  That infers laws must be written and upheld for the sole purpose of protecting persons and property.  Any other laws are an expansion of the federal powers which should be viewed as an improper growth of government power.

Considering the majority of power rests with the people, and some of which is ceded to local governments, and finally some of that is ceded to the federal government, one would logically expect a positive relationship between power and the number of laws.  In short, the closer the government is to the people, the more laws it should enact; and further the government is distanced from the people, the fewer the number of laws enacted.  The impact of the laws bears no relationship to proximity to the people as the Constitution grants the federal government sole authority on certain aspects of our society which can and do have a great impact on the individual citizen.

The legislative power to enact federal law is vested in Congress.  The extent of the federal government is restricted by the limitation to only those powers that are enumerated in the Constitution as federal powers.  Chief among them are: to coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures; to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries; to declare war; and to make laws which shall be necessary and proper for carrying into execution the foregoing powers and all other powers vested by this Constitution in the Government of the United States, or in any department of officer thereof.

That last phrase has been viewed almost as an “open door” to permit Congress to pass any law it deems necessary and proper.  However, no law is proper, no matter how necessary it may seem, if it violates the Constitution.  Specifically, any law that establishes any power not specifically granted to the federal law can never be considered proper.  That last phrase is also primarily ignored by our Congress every time an agency of the Executive Department issues a rule that carries the force of law and forces the citizens to comply with the rule under fear of punishment since only Congress can enact laws.

The underpinning of a free society is the concept of choice; the freedom of choice, especially as it relates to the employment of individual property.  If we are free, we should have the right to employ our property as we see fit to obtain the most satisfaction by doing so.  We should be able to keep it, use it, or sell it at our discretion without government interference.  Patent, copyright, and contract laws are designed to protect our property.  Any interference in the conduct of property use should be viewed as interfering in the conduct of a market transaction.  Since a market is a function of two parties agreeing to terms of price and quantity, and third party presence (neither a buyer nor seller) by any government entity creates market inefficiency.  Small inefficiencies can be tolerated, especially when they relate to funding the administration of the laws that protect property.  Additional interference and the additional inefficiencies should not be tolerated.

In summation, government should only do those things that the people cannot do individually; enact laws that protect property and persons, settle disputes in a court of law, ensure the national defense, and establish a national currency.  If our governments did these things and only these things, we would have continued to be the greatest economic engine the world has ever seen in our first 100 years of living under the United States Constitution.  When we began to expand the role of government to provide for the people what the people should be providing for themselves, our economy took a turn away from growth and began reversing those 100 years of prosperity.  After a little more than 100 years on the new path of expanded government, we are facing a serious economic crisis of spending more than we have and paying for that spending with money that is not backed by any commodity value.  We have to answer this question: what are we the people going to do to preserve the Constitution for the next 100 years?

Top Down or Bottom Up

I just finished reading an excellent book; Hostile Takeover: Resisting Centralized Government’s Stranglehold on America by Matt Kibbe.  I strongly urge each of you read this book.  Mr. Kibbe explains what is wrong with our current governance and offers a roadmap to correct each and every one of those wrongs.  He begins by likening our government to a business; the government officials being the upper management and we the people being the shareholders to whom the management is accountable.  He then builds upon that by introducing some important economic concepts and continues to explain why our liberties have been usurped by an expanding centralized government.  Kibbe’s stand on property rights and individual freedom of choice are purely from the Austrian school of economics.  He refers to government edicts as being top down, meaning the government makes the rules and forces compliance.  His solution is obviously just the opposite of the problem – return to a bottom up relationship between the governed and the government.

This is a newly released book as of June 19, 2012 but it is widely available for $20 or less, depending on where you purchase your books.

The essence of our disgruntlement with our current government is the very idea that a nation whose founders absolutely provided a government that is based on the concept of the consent of the governed has devolved into a nation whose elected and non-elected officials make most of the decisions for each of us that affect our daily lives.  Kibbe calls this top down, meaning the government elites make the decisions and then force them upon us by using the force of law, the power to coerce.  We simply want to turn that pyramid upside down and return to a bottom up form of governance in which our elected officials only do what we ask or tell them to do.

There are some powerful arguments presented and discussed in these pages.  I was amazed by the many examples of actual events that led to the building of the top down government and Kibbe presents them in easy to understand bites.

The tea party influence is not based on a top down leadership that inspires or compels followers to act according to a predetermined set of beliefs.  The tea party movement is spontaneous and lacks a central leader because it is truly a grassroots effort.  Our strength and coherence comes from our shared values.  Kibbe states the same values that define our nation’s founding also define our tea party movement:

Do what you say you will do.  Add value.  Don’t take credit for work that someone else performs.  Don’t hurt other people and don’t take their stuff.

That is not the kind of prose that would sound good for a candidate’s speech, but it accurately describes what all tea party members believe.

Reading this book has opened my eyes to a few things I had not previously considered as well as cemented my already optimistic view in the power of the people.  Great men and women have gone before us to accomplish great things in the history ofAmerica.  What made them great was their conviction to the basic principles of freedom.  We too, share in that greatness by our commitment to reestablishing the real American dream for our children and grandchildren by providing a future for our nation based on equality under the law, protected property rights, and elimination of a redistributive government that places social justice above equal justice.

Why America Is Not the Next Greece

I have heard several people ask if our country is heading in a direction that will make us the nextGreecein terms of national economic disaster.  There are indeed some comparisons but there is one minor difference with major implications. Americahas a serious national debt problem with current debt almost equal to gross domestic product (GDP) near $17 trillion.  A nation, or household, cannot continue business as usual for very long with a debt burden equal to its income.  Current income (revenue for a government) must be used to pay for current expenses and surpluses, if any, can be used to reduce the debt.  In the case of America, there are no surpluses and the deficits continue to increase the national debt.  We are getting ever closer to the fiscal cliff that has already been reached by Greece.

How did Greece get into so much trouble?  On the surface, it appears that their benefit payments to its citizens are simply too generous.  The generous Greek public sector wage and pension commitments must be paid for by those still working in the private sector to produce GDP.  When the ratio of private sector workers to public sector workers and pensioners gets smaller, the system becomes unstable as insufficient revenues cannot sustain increasing benefit payments.   That is a simplistic, but accurate, description of what brought Greece to the brink of disaster.

Many countries have experienced similar temporary situations but most of them find a way to deal with the issues and create some breathing room to dig out of the financial hole the bureaucrats have created.  A first action is usually to print more money to make up for the shortfall of cash.  That is exactly what America has been doing since the creation of the Federal Reserve System in 1913.  Printing more money is only a ‘temporary” fix since it does nothing to alter the fundamentals that created the problem in the first place – excessively generous government payment programs.

Both governments’ monetary theory goes something like this.  We have a shortage of money since we do not have enough to make the payments mandated by our laws.  We can reduce those payments (politically unpopular), supposedly increase revenues by increasing taxes (also politically unpopular), we can print more money (economically unsound as it reduces the value of existing money), or we can kick the can down the road to be dealt with by future government officials.  As any intelligent person can see, none of these choices is optimal; although reducing the payment is clearly the best choice.  The first two would jeopardize the employment of incumbents, the third choice seems like a safe option from a political point of view because the people will not realize that government is stealing their wealth through inflation, while the fourth option is politically attractive because every incumbent can deflect the blame on every other politician.

Greece decided to kick the can down the road after they attempted to increase the government money supply. Greece cannot print Euros out of thin air like the Fed can print dollars, because the Euro is a protected currency of the European Union.  Since Greece does not have the authority to print Euros out of thin air, they chose the next best big government solution of increasing sovereign debt.  A nation’s sovereign debt is the debt owed by a nation, a sovereign debt crisis is the inability of a nation to repay its sovereign debt in full when due. Greece issued a series of national bonds, much like U.S. Treasury bonds to fund their government expenditures.  These bonds were denominated in Euros, the national currency.  The Euros collected by the government in the sale of these bonds was used to fund current beneficiaries.  Since Greece does not have the authority to print new money to make interest payments or redeem those bonds, they created a sovereign debt crisis when they lacked the funds to service their debt.  That debt crisis is placing a burden on the rest of the EU that embraces the Euro as their currency.  This EU “bailout” will not solve the problem of Greece’s financial fiasco; it merely prolongs the inevitable. Greece is on the verge of national bankruptcy and nothing short of reducing government obligations to pay public workers and pensioners will solve their dilemma.

The United States is avoiding the Greek situation by printing more dollars; because we can.  The actions of Congress and the Fed continue to prop up the belief that our public sector payrolls and benefits are not excessively generous.  If public sector payments were our only out-of-control spending commitments, we would probably be okay in the long run.  But we also have unfunded commitments to Medicare, Medicaid, Social Security, plus a plethora of transfer programs to appease the entitlement dependents that consume our GDP and add to the annual deficit.  Printing new money to either fund those commitments or service our sovereign debt is not a long-term solution and this short-term fix merely kicks the can down the road.

Greece is probably going to voluntarily leave the EU, abandon the Euro as its currency, and reestablish its former currency at a dramatically reduced value.  They will be forced to suspend or drastically reduce government pay checks and pension benefits in an attempt to restart their economy.  It will be a long and painful process for all Greek citizens.

The United States still has time to wake up and smell the coffee.  Our recovery will also be painful for all but the wealthiest among us but it need not drag on for more than a decade.  The sooner we stop doing the wrong things – printing money out of thin air and transferring wealth from the creators to the dependent citizens – the easier will be our recovery.  More importantly, we need to establish a relationship with our government that prevents further creep toward a more centralized national government.  Our federal government needs to go on a diet to shed bureaucracy until it is the right size to engage in only those areas of government that are specifically enumerated in our Constitution as responsibilities and duties of the federal government.  The recovery process will be measured in years but, with a strong commitment of all Americans, those years can be counted on one hand with a few fingers from the other hand.  I am certain that we will one day be forced to take corrective action.  I pray that day of action is sooner rather than later as the longer we wait the more painful the recovery will be.

Shadow Government Payroll

Tea party conservatives continue to argue the sheer size of the federal government is too great.  Much to our dismay, a large portion of the citizenry does not share our concern.  I will attempt to shed some light on this matter.

I read an excerpt from a Time magazine article entitled “Bubble on thePotomac” by Andrew Ferguson in which he states an interesting statistic.  Mr. Ferguson claims the size of the federal workforce, without considering the military and postal workers, has remained relatively stable since the 1960s.  So why is that upsetting to the tea party conservatives?  Conservatives look past the obvious and focus on the total federal payroll.  Since the Clinton Administration, a great push in outsourcing has been going on.  Contractors from the private sector are being hired to provide government services without increasing the number of government workers.

According toFerguson, the estimation is that we have two government contractors for every direct government employee.  If that is true, and I believe it probably is, then the growth rate of government “employees on the federal payroll” has increased 200% over the last two decades.  That is a serious growth in the size of the government payroll.

What is wrong with so many government contractors?  Primarily, the size of the payroll since it must be funded by taxation or borrowing.  Additionally, the resources that are used by the government cannot be used by the private sector at the same time.  Economists refer to this as an opportunity cost – something that must be sacrificed because a choice was made to employ a resource in a specific way and all other possible uses for that resource are given up.  Society pays that opportunity cost by forfeiting the ability to use those resources in the private sector.

One could argue that a private for-profit firm that has a government contract to provide a public service is still a private employer.  I would like to call your attention to one of the most basic rules of inquiry – follow the money.  If the government is paying the firm for those services, and those government payments constitute 100% of the firm’s revenue, then that firm is NOT a private sector firm at all; it is a de facto public sector firm.  This de facto government firm receives payments that were either imposed on society as a tax burden or a debt burden.  The federal government can only raise money by taxes or borrowing and each of these methods are ultimately borne on the backs of the taxpayers.

The majority of these contractor jobs is in the military-industrial complex and is justified by a willing Congress and Administration that sees more money spent as being more power to those who dole it out.  We did not send men and women toWashingtonto increase their personal power at the expense of the people – we sent them there to act in our best interest rather than their own best interest.  Sadly, too many of these contractors are overcharging for their services and we are being stuck with the inflated tab.

To recap the significance of this “shadow government” – the federal employees who are not direct hires of the federal government – we need to focus on the meaning and the costs to society.  In reality, every time one sees a directly hired federal employee, one must also consider the two “shadow” contractors standing behind him.  Those people and the resources they use to provide their services have been sacrificed by society as an opportunity cost.  Additionally, the tax that must be collected from the private sector to pay for those government services is being levied on an ever diminishing population since the private sector is loosing available workers to the government contactors.  The government must either increase the taxes or increase the debt to make its payroll.  Raising taxes would be widely unpopular, so our government has instead chosen to increase the national debt.  Currently, four out of every ten dollars spent byWashingtonis borrowed money.  Why is that not universally unpopular to society?  The increasing debt is certainly unpopular to tea party conservatives!

Our economy is in a downward spiraling situation with a diminishing private sector workforce paying for an expanding federal workforce through taxation and debt.  How can this scenario have a good ending?  The only solution is to reverse it – cut back on the practice of federal outsourcing, especially when the services provided are priced at levels far above what the private sector would change; cut overall spending to reduce the obscene amount of borrowing; and remove regulations that hinder capital growth and business expansion in the private sector.

Sustainable economic growth cannot come from more government employment, as the last twenty years have shown us.  A larger government workforce increases government expenditures that must be met with higher taxation or more borrowing.  Real economic growth comes from the private sector.  Only the private sector can employ capital and create jobs in a way that will expand the tax-payer base and spread the tax burden over a larger workforce.  An economic upturn will employ more private sector workers and that increased workforce will pay more tax revenues to the government – revenues that should be employed to reduce the outstanding debt.

Moochers, Looters, Traders, and the Truly Needy

In our current society, four classes of economic actors are the most important; moochers, looters, traders, and the truly needy.  They are the people who are on one end or the other of every financial transaction in our economy.  Every time money changes hands, it does so from and to one of these actors.  Exactly who are the moochers, looters, and traders?

Moochers are those folks who feel entitled to that which they have not earned; property or money that was earned by another.  These are the takers, the leeches, the suckers in any society who feel entitled to be given alms from the government with no concern about the source of those funds.  Their claim on the property of others is simply based on their need.  Moochers need food, clothing, shelter, and more; but rather than apply their brains or muscle to a task of production to satisfy those needs, they rely on guilt and corruption to impel those who have earned their property to supply funds to satisfy those needs.  They envy anyone who has more than they have and somehow believe they have a right to lay claim on the property of others simply because they do not have as much property.

Moochers envy others who have more and demand a share of their fortune.  Moochers do not want to earn more, they simply want more to be given to them!  Moochers and beggars have been a part of every society since man first lived in a communal setting.  Early man always cared for widows and orphans out of a sense of community.  That caring was not charity or guilt, it was simply the honorable thing to do.  The current day moocher has exploited that sense of human duty into a perverse sense of guilt so they can get a free ride without any stigma of being on the receiving end of that which is unearned.  As a society, we permit moochers to impose an onerous burden on our economic output; so much in fact, that our economic engine is coughing and sputtering in an attempt to keep running with a huge moocher drag on it.

Moochers are part of the corruption of our current government in that they will uniformly vote to continue to elect and re-elect the vile politicians who promise them a free ride by taking property from those who have earned it and redistributing that property as a “payment” for those votes.  Moochers constitute a net drag on the economy of the society to which they belong; they contribute nothing to the gross domestic product and nothing other than a dependent class of citizens who could work to support their needs but choose to beg, and demand their government provide for them.

There is another class of moochers who cannot be ignored by any civilized society; the needy.  There will always be those, who through no fault of their own, cannot care for themselves.  They are the children, the infirmed, and the elderly who can only rely on the charity of others to survive because they do not have the ability to earn a living.  We would be without mercy if we fail to support them.  However, those who are truly in need are a small percentage of the population; certainly not the 50% of all current households who depend on some form of government subsidy each month to make ends meet.  The entire 50% are moochers, but only a small number of them are without choice.  Those who can work should; and those who cannot work should be provided for by their local community rather than by society as whole.

Looters are politicians and other special interest entities.  The politicians who advocate confiscating the wealth of citizens so they can fund their redistribution of wealth social programs are looters.  Special interest lobbyists who influence the government to enact laws that grant them some special privilege in the market over their competitors are also looters.  Looters are the bane of any free market system because they act with the might of government power to coerce and force compliance.  There laws are unfair because they are not based on Constitutional power and are the rule of men over the rule of law.  There is nothing fair about government confiscating the property of one citizen and giving that property to another citizen.  One tenant of our society is all members of society are equal under the law, but the looters have made a sham of that constitutional guarantee.  There is no justice for those who amass wealth through hard work and ingenuity when looters “level the playing field” by redistributing the fruits of their labor.

Looters go by many names; politicians, lobbyists, special interest groups, corrupt businessmen, and organized labor, to name a few.  All of these looters seek to obtain the wealth of others without earning it.  Every looter wants the government to exercise its legal power of coercion, the use of force, to compel those who have amassed wealth to cede that wealth to someone who has not earned it.  All looters are contemptible since they, like moochers, add nothing of value to the economy but merely sap the life blood out of it.  There are so many looters in our modern society that many people do not see the looting as anything other than the status quo.  Almost every one of us belongs to one or another of the special groups that are served by looters; and most certainly, every one of us who earns a living must forfeit a potion of their earnings to fund the looter’s plans.  The looters, along with the moochers, will most surely stall our economic engine.  Every economy has a limit as to how much drag it can endure before it fails.  Margret Thatcher stated it clearly when she said, “The problem with socialism is that sooner or later, we run out of other people’s money.”  I submit that later is sooner than most people think it is!

Traders are the men and women of society who engage in exchanging something of value for something they value slightly more.  We are all traders when we purchase food for our consumption; we trade dollars for foodstuff.  Traders are crucial to the operation of market system because they recognize the value on both sides of the trade.  A trader will accept a job and give his employer an hour’s work for an hour’s pay.  A trader will ask for nothing more, nor will he accept anything less than the agreed value in any trade.  Traders are the consumers who have the demand for goods and the ability to pay for them, and the producers who are willing and able to supply those goods.  It is this interaction between willing buyers and willing sellers that ultimately establishes the market price and quantity of all goods and services traded in a free market system.  Traders could be individuals, businesses, and even government entities; but what makes them traders is the understanding that value is traded for value.  That concept requires that the value offered must be very nearly equal to the value received.

The concept of being almost equal in value is important since if they were of equal value, people would be indifferent and not trade.  Giving up something of value in exchange for something that is valued slightly higher is what makes trading possible.  Value is in the eye of the individual.  No two individuals will value anything exactly the same.  The buyer values the product more than the money he relinquishes to obtain it; and the seller values the money more than the product he sells.  This is a fundamental economic concept that is misunderstood by many, especially those in government who believe they can set arbitrary prices for labor and other products and the markets should behave as if the government is correct in their assessment.  That is folly since the price and quantity traded in the market are determined not by government edict but by the supply and demand of the market.

Entrepreneurs are a special breed of traders who have the unique ability to see ways of combining resources to create a product or service that is in demand by consumers.  It is not just this ability to combine resources that makes them special; they are also willing to accept risk.  The risk they will accept is that their product may not be demanded or that they cannot make it available at a price the consumers are willing to pay.  Entrepreneurs are the lifeblood of a market economy because they can do what no other actor is willing or capable of doing.  Entrepreneurs gave us the great industrial inventions that save our time by accomplishing more output with fewer input resources.  This increase in productivity led to increased wealth, both personal and for those he employed.  It also provided more leisure time since more could be produced in less time than was previously possible. Entrepreneurs have also given us inventions that enhance our leisure time.

Entrepreneurs are the most important traders since they are the ones who create productive jobs for others.  Without entrepreneurs, our employment opportunities would be severely limited.  Entrepreneurs are the ones who create the environment in which the workers can produce goods.  Ironically, the entrepreneurs collect only a small percentage of the profits they create – the majority of the profits are shared by the workers who produce the products.  But, since that majority of the profit is spread over many workers, some workers believe they are entitled to more since they believe they are the cause of production.  That idea contains a fatal flaw; if the workers are responsible for the production of a product, why is an entrepreneur required to risk his time, energy, talent, and personal funds to create the enterprise that eventually hired the workers?  The workers who want more of the profits without increasing their output are transitioning from being traders to becoming mooches!  As long as the workers are paid fairly, value in exchange for value, they have no complaint or concern for the profit earned by the entrepreneur.

Lastly we have the truly needy.  We all know who they are.  The truly needy include children and adults but they all share the inability to provide for their own welfare.  The truly needy have no other option but to be supported by the charity of others since they cannot provide for themselves.  The truly needy are always best served by local charities whose members know the specific circumstances and are qualified to find solutions to their problems; from temporary assistance to permanent support.  The least effective way to help the truly needy is through federal government programs that have no direct contact with the individuals being served.  Ironically, our current government believes it is better able to serve the truly needy than locally managed charities.  The proof is in the pudding as they old saying goes.  Local charities have always provided for those community members in need while the federal government has a very poor record of doing anything other than serving moochers under the guise of being truly needy.

Now that I have clearly defined them, which are you dear reader?  Can you identify friends, relatives, and neighbors in any of these groups?  Which group of actors do you believe make our economy stronger and which group or groups make it weaker?  Which group of actors engages in activities that are sustainable?  Which group of actors do you want your children and grandchildren to emulate?

President’s Letter 05-31-12

May 31, 2012

Letter to the Wayne County TEA Party

I have a break in my teaching schedule and am catching up on some long postponed reading. Currently, Atlas Shrugged is getting most of my leisure time. Ayn Rand wrote this in 1957 and she was clearly a true visionary to describe what is happening today 50 years before it came to pass!

One passage that really caught my attention is one of the protagonists, Dagny Taggart, an industrialist, reflecting to herself: “There is no action she could take against the men of undefined thought, of unnamed motives, of unstated purposes, of unspecified morality.” I underlined that as it struck me as being significant, especially when facing the communication gap that exists today.

We conservatives know what is right or wrong because we can logically think through the information presented to us and see that an ever-expanding federal government is not sustainable. We know that a government that pays out more than it takes in is clearly headed for fiscal disaster. We can easily see that people who are lulled into thinking it is okay to accept a generous government handout rather than work at a minimum wage, will continue to vote to elect those who will continue to spread the wealth through government rules and laws. What we do not easily understand is why some people would voluntarily give up their dignity to become dependant on a government that is destroying the very mechanism of wealth creation that is at the heart of the wealth distribution schemes.

We have heard many times that liberals tend to focus on the emotional aspects rather than the facts surrounding an issue. They are very good at getting some people to see the importance of acting from their heart rather than their brain. So good, that some people have said to me that they don’t believe I am correct in my thinking; they are not sure in their minds that I am wrong, but they know in their heart that I am wrong. In short, I am heartless for believing that people should work to earn a living and accept whatever level of current earnings they have as a limit on their consumption; or that people cannot spend more money than they currently earn, especially for the long term. I am not at all heartless, I am rationale!

The dependent class of Americans honestly believes they are entitled to the fruits of the labor of others. The reason that notion can exist lies in the reference to unspecified morality. Too many people believe that government can give rights because they do not have the spiritual understanding that our rights are granted by our creator; and government did not create us – we created government! When a government assumes the position of creating rights it then must have “superior rights” and can issue “inferior rights” to some or all citizens. We all know we have the right to life, liberty, and the pursuit of happiness. But if government supposes to grant rights, then government can determine how and when life begins and ends, how much or how little liberty any individual has, and how we must go about pursuing our happiness. That scares me. Many have fought and died to preserve those rights that are being diluted by elected and unelected officials who have been able to bribe citizens with a redistribution of the wealth created by others.

Our Founding Fathers knew our form of government can only exist when it serves people of faith; because faith implies morality. Morality cannot be legislated; it is imbued in us at an early age by our parents, spiritual leaders, role models, and community. Morality involves adhering to the spirit of the law as well as the letter of the law. Our lack of morality is evidenced by the many revisions to laws and rules that attempt to capture every conceivable situation. A moral person recognizes that stealing the property of others is wrong. It does not matter who it stolen from or how it is stolen – stealing is wrong! But when the government takes the property of a law abiding citizen (tax) and gives that property to someone who did nothing to earn it (social program), only one without morals can see that as acceptable behavior. How did our society stoop so low?

Many folks have diligently worked to undermine that sense of morality since the beginning of progressivism. When I have lost employment over my life, I did not seek government unemployment compensation – I sought another job! I did not look to the government as a solution; I prayed and looked inward for the solution to my temporary situation. Most of you are probably the same. If you accept any form of assistance it is only temporary, as temporary as possible, and the permanent solution always comes about because of actions you take to correct the situation. I am afraid that moral people are in the minority in contemporary America.

We have to overcome this pervasive communication message being propagated by men who have undefined thought, unnamed motives, unstated purposes, and unspecified morality. We need to set an example of living within our means and encouraging others to do likewise. We need to communicate the truth about economic laws and stress that all funds collected by the government through force of law had to first be created by someone who converted individual effort into action. All wealth is created by work; and without work there can be no wealth. For the first hundred years our nation proved that common people can create wealth through hard work and ingenuity at a time when wealth creation in the rest of the world was still based upon conquering others and confiscating their wealth. I believe we need to explain to the recipients of government largess that the “Golden Goose” of both fairy tale and current reality can indeed be killed.

We must all pledge some time to devote in encouraging others outside of our group to see the truth that a small percentage of progressives have undermined our government, economy, and business environment. Those modifications are dangerous in a way that will eventually destroy our economic system. Producers will no longer produce when the government provides them with incentives to remain idle. Entrepreneurs will no longer start businesses and create new jobs when excessive government regulations make it impossible to do so. Unemployed persons will not actively seek employment when government transfer programs provide 80% of what they previously earned for 99 weeks. The Fed will continue to print more money and push inflation still higher rather than stop printing money and be caught as the counterfeiters they are while the economy suffers a great loss of wealth until a new form of “money” replaces the current fiat paper money. Those of us who see the errors will be blamed by those who called us heartless; the very ones who allowed this to happen by “thinking” with their emotions rather than their intellect.

Please join me in working diligently to elect conservatives who will roll back government regulations that are leading us down this path of destruction. Help me to educate voters and encourage entrepreneurs to start businesses and create jobs. Assist in spreading the word about the evils of a non-regulated, non-government Federal Reserve Bank that is the main economic problem disguised as a government institution and a solution. Pledge to give a few hours of your time every week to be a part of reclaiming the America our Founders gave us.

Gary Harper
President, Wayne County TEA Party

Let the Free Market do its Job

This letter was published in the Daily Record on 05-19-12.

Editor:

I will watch with interest to see if Congress gets it right this time. JP Morgan announced a $2 billion loss to its shareholders. The Federal Reserve Act was designed by bankers to ensure that they could keep their profits while passing all of their losses on to taxpayers. After almost 100 years of sticking those losses to taxpayers, the American public is just now beginning to see the evil of the Federal Reserve.

The solution lies in letting those banks (and every other entity) keep their profits and their losses. Transferring the losses to a third party constitutes a moral hazard that encourages banks to make even higher-risk investments since the potential for profits is higher and the risk of loss is virtually insured by federal law to be absorbed by the taxpayers!

Congress should not bail out JP Morgan. Congress should pass a law forbidding any future bail outs. Congress should repeal FDIC and require banks to purchase private deposit insurance. Insurance companies would accurately assess the risk of a bank before offering deposit insurance and depositors could easily see which banks to avoid based on their high risk nature. Let the free market work to determine how resources are used and let the consumers decide where to invest or deposit their money. The answer lies not in more banking regulations; but less banking regulations that entangle the taxpayer’s money in banking operations. The only way banks are going to behave better is by holding them accountable to their shareholders for their actions. Take the public purse out of the banking system and let bankers return to the conservative (low risk) ways of doing business that made them a public trust business in the first place.

I am not holding my breath in anticipation of Congress doing the right thing. I would even place a bet that Congress will articulate another lame excuse (lie) justifying why JP Morgan is “too big to fail” and passing those $2 billion in losses onto the (already overburdened) backs of the taxpayers!

Hopefully, if Congress can see these truths, maybe they will begin the necessary process of unwinding the Federal Reserve Act which has been the main reason for our stumbling economy ever since the law was enacted on December 22, 1913.

Gary Harper
President, Wayne County TEA Party

The TEA Party Challenge in 2012

2012 is a presidential election year. That means we can expect more voter turnout than in the so called mid-term elections. That really disappoints me since every election is vitally important to the quality of governance we get based on who we elect. If our goal is to achieve better governance, then every election is equally important!

There are a lot of different “wish list” items that would ostensibly make our governance better. Chief among them are a balanced budget amendment and term limits for congress. I submit these are not necessary and discussing or debating them only serves to maintain the status quo. The one item that needs to be addressed is the repeal of all campaign reform laws since these laws do not serve the needs of the people but virtually ensure an incumbent politician will keep his seat. The people should elect representatives who will overthrow those laws.

To accomplish this we really need better informed voters who will go to the polls and cast an intelligent ballot in every election. Last year we established the Wayne County TEA Party (WCTP) to do just that – educate and motivate the local voters to affect the type of governance we want. We want a return to the limited government provided by our Founders; a government that protects the rights of all individuals and states resulting in limited spending and sound fiscal policies that encourage free-market activities so that our economy can flourish.

We need to communicate with as many like-minded citizens of Wayne County to pull together with a common goal that will bring about meaningful change and overthrow the status quo. The TEA in our name is an acronym for Totally Engaged Americans; and that is what is required to fix the mess our nation is in.

Both major political parties are culpable in bringing our nation to its current unsustainable state of increased debt and hindering economic growth. I cannot see the Democrats reversing course and abandoning their core values of wealth transfer and ever-increasing tax-and-spend policies to fund their goals. Our only real hope is to get the attention of the Republican Party leaders, beginning at the local level and spreading eventually to the national level.

Republicans have traditionally been conservatives; but the real problem can be summed in this observation; good men and women go to Washington to serve the people and stay in Washington to serve themselves. Why must we accept the status quo? We don’t need term limits; we simply need to replace those members of Congress who are self-serving with representatives who will serve the public!

All politics is local, as the saying goes. I submit that all political solutions are also local. We need to pull together and speak as if there is one voice calling for change. The local Republican Party will be forced to listen to us if we represent a large enough voting bloc, since ignoring us would render them moot. We must insist on better governance beginning with the township trustees, city or village councils, and county officials. All government meeting need to be attended by a member of the WCTP so every elected and appointed official knows we are watching and evaluating their performance in accordance with our standards.

I am soliciting all conservatives regardless of their political party affiliation. Democrats, Republicans, Independents, and others are all welcome to join us as long as they share our vision, values, mission, and goals. As an individual, I only have one vote; but together, conservatives comprise more than half of Wayne County residents. Let’s all endeavor to reach out to other like-minded citizens and invite them to join us so that we may speak with a louder voice – hopefully, one that is so loud that we can no longer be ignored.

A large team of volunteers is needed to monitor all governance in the county. We are in need of concerned citizens who are able to donate time to attend those government meetings. The WCTP will need between 75 and 100 volunteers to accomplish the desired oversight. We are looking for individuals who can volunteer a few hours each month to be seen as they personally attend government meetings and report what they observe to the WCTP. We must also be vigilantly looking for potential candidates who are willing and able to serve the public.

Once we fix the local levels of government, we can expect to make changes on the state and national level by replacing those politicians who do not consistently act to provide better governance. There are numerous conservative groups in Ohio that are communicating with one another to send a clear message to our statehouse. We are seeing some progress but more unity is needed since we receive almost no response from the major media in Ohio. On a national level, virtually every member of the House of Representatives is up for reelection every two years; we could continue the performance of 2010 by electing more conservative representatives. The Senate term is six years, with roughly one-third of them up for reelection every two years; which means it will take a little longer to improve the conditions in the Senate. We do not need term limits imposed by law, we simply need to replace those who are in office for self-serving reasons and replace them with patriots who want to serve those who elected them.

Always keep in mind that those in power do not want us to converge with similar core values because, if we do, their dominance in national and state political power will abruptly end. When citizens avoid the distractions of class warfare and distracting rhetoric and cooperatively band together to replace all politicians who serve themselves, regardless of their party affiliation, the power shifts back to the people and the politicians will act in our best interest or be replaced by someone who will.

The future of Wayne County, the State of Ohio, and the United States of America is very bright indeed for all of us who are willing to commit to a little time and hard work while tenaciously resisting the indoctrination from incumbent politicians. When we are convinced they work to serve us instead of the other way around, the future will be secure. We owe it to our children and grandchildren to take positive steps now to prevent a ruinous status quo to continue past the November 2012 elections.

Gary Harper
President, Wayne County TEA Party

The Federal Reserve System Part II

The Genesis of the Fed

The New York Chamber of Commerce established a currency commission to report on the problems associated with an insufficient supply of money. The commission reported their findings in October 1906 and concluded the nation needed a central bank to eliminate currency instability the danger of an inelastic currency. Currency instability refers to the purchasing value of the currency being reduced as a result of inflation. Inelastic supply, to an economist, means that supply does not increase when the demand increases. Another means to describe this lack of money is to call it a liquidity crisis, in which insufficient amounts of money are available to meet an increasing demand. Bankers saw this lack of liquidity as a potential loss of profit as they were unable to issue the loans that were being demanded. There is no sound economic rationale for simply increasing the money supply to relieve a liquidity crisis.

Note: under normal economic laws, when the demand exceeds supply, the price rises. Since interest rates represent the price of money, an increase in demand for money should cause the interest rate to rise. This is a good thing. An increasing interest rate ensures that money will not be borrowed for frivolous reasons; but instead will only be borrowed for purchases that make sound economic sense like buying new capital equipment that can be used by businesses to make more “widgets” on a more economical scale and sell them for a lower price!

This commission report began a series of events that led to the enactment of the Federal Reserve Banking Act in 1916. The panic of 1907, which was the result of inflation stimulated by the President Theodore Roosevelt’s Secretary of the Treasury Leslie Shaw over the previous two years, resulted in the big bankers coming together in agreement that a central bank, as a lender of last resort, was required to stabilize the economy. Shaw was attempting to run the Treasury as if it were a central bank by making open-market purchases; the infusion of Treasury money into the economy resulted in inflation.

The big bankers co-opted the academics into presenting a series of lectures during 1907-1908 that called for the economic reasons for a central bank. In January 1908, Senator Nelson W. Aldrich took the lead in banking reform by establishing a National Monetary Commission (NMC) that was to investigate the currency question of instability and suggest proposals for banking reform. The NMC was a sham; its real mission was to overwhelm the public with supposed academic experts and take the financial issue out of politics by putting the non-elected academics and experts at the forefront.

In September 1909, Chicago banker George M. Reynolds delivered a presidential address to the American Bankers Association calling for a central bank. On September 14, 1909, President Taft suggested the nation seriously consider a central bank during his address in Boston. On September 22, 1909, the Wall Street Journal began a fourteen-part series of front-page editorials entitled “A Central Bank of Issue”. These unsigned editorials were actually written by Charles A. Conant, who was the chief paid propagandist for the NMC.

1910 saw numerous public speaking events and printed materials all in support of a central bank and all by non-elected, supposedly non-political types. Every one of them was careful to make this appear to be grassroots movement without ties to any elected official. These behind- the-scene tactics were totally effective in spreading the word (quite a bit of it lacking facts) and thereby educating the general public for the need to support a central bank movement in America.

On November 22, 1910, a secret meeting was held at Jekyll Island, Georgia. Senator Aldrich and five businessmen representing the largest banking interests in the world at the time, traveled under assumed names in complete secrecy, to the private resort co owned by J.P. Morgan to spend a week in drawing up the bill that would eventually become the Federal Reserve Act. Aldrich presented the bill to his NMC with only minor revisions, and it officially became known as the Aldrich Plan in January of 1911. The elections of 1912 brought a change in party to the White House which required dropping the Aldrich name in favor of a more centrist politician. The bill took the name of Representative Carter Glass from Virginia. The bill underwent numerous revisions but was passed by an overwhelming majority in both houses in December 1913. Even with the changes, it was still virtually the same as the original draft written at Jekyll Island.

Now that the central bank was in place, bankers had no reason to hold gold in their vaults. They could, and did, deposit their gold with the Fed and receive reserves upon which they could make loans. They were able to pyramid their credit and thereby expand the supply of money and credit from coast to coast in a coordinated fashion. This was in inverse pyramid with the bank deposits as the base and an expanding succession of upper layers that represent the effects of that lending through successive lending. Economists refer to these successive layers as compounding or the multiplier effect. Coordination was necessary so that inflation was maintained at a low enough level so as to not upset the people and call for government intervention. In short, bankers had created a goose (the Fed as a central bank) that was laying golden eggs for them to harvest on a daily basis.

The inverse pyramiding of bank credit thus created was three layers deep; the Fed pyramided its notes and deposits on top of the newly centralized gold supply; the national banks pyramided bank deposits on top of their reserves on deposit at the Fed; and the state banks who chose not to join the Federal Reserve System could keep their deposit accounts at national banks and pyramid their credit on top of those deposits.

The Fed sat at the base of the pyramid and could coordinate and control inflation by determining the amount of reserves in their member banks. Prior to the Federal Reserve Act, the reserve requirement for national banks was 20 percent reserves to demand deposits. This meant that banks had to set aside 20 percent of demand deposits while making loans with the remaining 80 percent. That resulted in a money multiplier of 5 since 100 percent divided by 20 percent equals 5; meaning the ratio of demand deposits to new credit creation was 5:1. One of the first acts of the new Fed was to cut the reserve requirement in half to only 10 percent of demand deposits, thereby increasing the credit creation ration to 10:1.

I should note that issuing credit and loans on the demand deposits is not necessarily a bad thing under economic law. The new loan is essentially converting a piece of paper that serves as the loan agreement into checkable deposits. This act of monetizing is known as money creation. Money is created when a loan is issued and then money is destroyed when the loan is paid back. Since the temporary increase in the money supply, or monetary base, is offset by the destruction of money when the loan is repaid it does not result in a permanent increase in the money supply. That borrowed money will be spent to buy goods and services that should help the economy grow. This is only valid because the loans are based on deposits that have actual value. When the Fed creates money out of thin air with nothing to back it other than the full faith and credit of the United States, the increase in the money supply, or monetary base, is not temporary; it is permanent since the Fed never takes the closing position of destroying the money at some time in the future. I will discuss the money supply at length in part III.