In this article, Why Has Classical Capitalism Devolved Into Crony-Capitalism, Charles Hugh Smith, (oftowminds.com) makes the point that the Elites, consisting of ; people in Government and central bankers, lesser institutions that are closest in orbit around Government and central banks, and organizations and individuals who are orbiting these lesser institutions, think the economy will eventually “heal itself” even after all they have stolen through zero percent interest rates, electronically printed counterfeit money, and Government debt. These three legs of theft are, quoting CHS, “…crippling the market’s self-healing immune system: Price discovery. Thanks to ceaseless interventions by central banks, the price discovery mechanism has been shattered: want to know the price of risk? It’s near-zero. Yield on sovereign bonds? Near-zero. And so on. Prices have been so distorted (the ultimate goal of Central Planning everywhere, from China to the EU to Japan to the U.S.) that the illusion of stability is impossible without more intervention.”
Here are his six factors of how, “...free market capitalism becomes state-cartel crony-capitalism, a Ponzi scheme of epic proportion...”
1. “Those who control most of the wealth are willing to risk systemic collapse to retain their privileges and wealth. Due to humanity’s virtuosity with rationalization, those at the top always find ways to justify policies that maintain their dominance and downplay the distortions the policies generate. This as true in China as it is in the U.S.”
2. “Short-term thinking: if we fudge the numbers, lower interest rates, etc. today, we (politicians, policy-makers, money managers, etc.) will avoid being sacked tomorrow. The longer term consequences of these politically expedient policies are ignored.”
3. “Legitimate capital accumulation has become more difficult and risky than buying political favors. Global competition and the exhaustion of developed-world consumers has made it difficult to reap outsized profits from legitimate enterprise. In terms of return-on-investment (ROI), buying political favors is far lower risk and generates much higher returns than expanding production or risking investment in R&D.”
4. “The centralization of state/central bank power has increased the leverage of political contributions/lobbying. The greater the concentration of power, the more attractive it is to sociopaths and those seeking to buy state subsidies, sweetheart contracts, protection from competition, etc.”
5. “Any legitimate reform will require dismantling crony-capitalist/state-cartel arrangements. Since that would hurt those at the top of the wealth/power pyramid, reform is politically impossible.”
6. “Understood in this light, it’s clear that central bank monetary policy—zero-interest rates, asset purchases, cheap credit to banks and financiers, QE, etc.—is designed to paper over the structural problems that require real reform.”
CHARLES HUGH SMITH INTERVIEW
If you want to hear an interesting and in-depth explanation about the rise of crony capitalism, listening to Charles Hugh Smith’s interview with Gordon T. Long would be well worth your time ( it also has some great graphs and diagrams).
The pen is mightier than the sword… (Photo credit: mbshane)
11 Ways You Know You Live In A Country Run By Idiots, at theburningplatform.com. Only eleven! I’m sure we can come up with a few more. How about this: If the incentives created by The Affordable Care Act raise the price of health care, you live in a country run by idiots.
New York Schools Drop Michelle O’s Lunch Program, by Victor Skinner, at eagnews.org. More schools are dropping FLOTUS’s school lunch program because sales are down. But in true totalitarian fashion FLOTUS and POTUS are in lock step in their attempt to force kids to eat healthier (healthier as defined by whom). Here is the money quote from the article, “Meanwhile, lawmakers in the U.S. House of Representatives are considering legislation to provide exemptions from the lunch regulations for schools that are losing substantial revenue, though Michelle Obama has vowed to fight for her pet project “until the bitter end. President Obama has also promised to veto the legislation if it makes it to his desk, the Associated Press reports.”
The Myth Of Obamacare’s Affordability, by Casey Mulligan, at economicpolicyjournal.com. As I said when the Affordable Care Act was passed, “If you think health care is expensive now, just wait until it becomes affordable”.
What Ever Happened To Global Warming, at economicpolicyjournal.com. When I was in high school in the early 70’s, scientists would have been considered “global warming deniers”, because they thought the earth was cooling.
Competition Heats Up In The NYC Taxi Market As Gett Introduces $10 Rides In Manhattan, by Mark J. Perry, at aei-ideas.org. Competition in free markets means lower prices for consumers. Unfortunately many consumers unwittingly vote against their own self-interest when they vote for politicians who are for central planning and against free markets.
Issa Accuses Holder Spokesman Of Attempting To Conspire With Democrats On IRS Documents, by Colby Itkowitz, at washingtonpost.com. Eric Holders communication director called GOP staffers by mistake. Thinking he was talking to Democrats, he asked how he could get materials, about the IRS targeting of conservative groups, to interested reporters, before they were sent to the Republican majority, so the agency could spin the story first. This is why I hate politics. The good of the party overrides what is good for individuals.
How can these seemingly unrelated stories have anything in common? They are not related in any way, unless you understand the concept of human action as explained by Ludwig von Mises in his tome “Human Action: A Treatise On Economics”. Human action has nothing to do with the psychological reasons or the internal forces that result in a particular action. Trying to figure out these reasons would be guesses by anyone who is not a psychiatrist, and educated guesses by professional psychiatrists. Human action is purposeful behavior and as such can be meaningfully interpreted. The end man seeks with his action is his motive for acting. Why he is motivated to attain this end has nothing to do with human action. Human action doesn’t care about the psychological reason compelling a person to act, it only cares about the action itself. When a person acts he is not simply giving preference among many alternatives, he is displaying what he prefers at that particular moment.
In summary. A person purposefully acts using available means, to reach a particular end, an end which he thinks will bring about a more satisfactory state of affairs than the state of affairs that existed before he decided to act. A person makes a particular choice, between many competing ends, at a particular time. His choice reveals his most valued end that particular moment. The correctness or incorrectness of the action chosen will be revealed at some point in the future.
Now lets analyze these two stories.
RAY AND JANAY RICE
Ray Rice hit and knocked out his then fiancée Janay Palmer in February of 2014. On March 27th a grand jury indicted Ray Rice on aggravated assault charges, and dropped simple assault charges on Janay Palmer. On March 28th Rice and Palmer were married. On May 1st Rice rejected a plea deal and applies for pretrial intervention program which accepted him allowing him to avoid a trial. Rice is suspended in July for the first two games of the year. The video of Rice punching his then fiancée surfaces on September 8th, and later that day the Ravens terminate his contract, worth $4 million this year, and the NFL suspends him indefinitely.
Everyone from reporters, commentators, spokesmen for women’s groups, politicians, et al, have an opinion on why she would marry the guy who knocked her out. Here is how human action helps us understand this. It doesn’t matter what motivated her to marry him. Her choice reveals that she thinks being married to him is a better state of affairs than not being married to him. Trying to figure out why, assumes a level of knowledge that no one, outside of Ray and Janay, has access to. The correctness of her action will be revealed at some point in the future. The statement in her instagram message (here), “…THIS IS OUR LIFE!”, means butt out it is none of your business.
One more comment. What is the preferred end, the Ravens, the NFL, reporters, commentators, spokesman for women’s groups, and politicians think they will achieve by the actions they have taken in this case? No matter what the preferred end is, they obviously think the actions they have taken will bring about a better state of affairs, for themselves.
OBAMA’S IRAQ SPEECH
Lets start with a little background. In 08 the President campaigned on getting out of Iraq. After he got elected he set a date for withdrawal which allowed the enemy to lay low and rearm. He withdraws our troops without leaving enough of them to keep the enemy in check and help support the new Government.
If there is one thing we can be 99% sure of concerning every politician its this: the end sought in every action is to gain political power, especially when these actions happen closer to an election. This is why in the last few weeks, the President has talked about corporations using “unpatriotic tax loopholes” to pay less in taxes, and why the minimum wage should be raised. The speech about Iraq is purposeful action taken for the achievement of an end that will be preferable to the present state of affairs. Now here is the 64,000 dollar question: is this preferable state of affairs to make the Iraq situation stable, or is it to help the Presidents political situation before the November elections? Either way we will know the answer to this question at some point in the future.
The biggest difference in these two cases is, 1) In the Rice situation, Ray and Janay suffer the consequences of their actions. 2) In the Iraq situation, all of us will suffer the consequences of the actions of the President. So why are more people talking about the situation that doesn’t affect them, instead of talking about the one that does affect them?
George Gilder talks about what creates wealth in this short video below from Prager University. He talks about knowledge and innovation leading to economic growth. But the most important point he makes in this video is that freedom is the foundation on which knowledge and innovation is expanded and used productively to create economic growth. Here are some excerpts from the video.
“If freedom promotes knowledge and innovation, which leads to economic growth; why don’t all people and Governments embrace it? Innovation is a surprise, it’s unpredictable. This unpredictability makes many people uncomfortable. Their goal is to eliminate surprise. One finds this in all utopian vision, from communism, to socialism, ….in Europe with its failing welfare states and more and more in the US. We see their desire to eliminate surprise in the ever-expanding role played by Government, bigger bureaucracies, more rules, and more regulations. Every new crisis, real or imagined, brings ever more laws….Ironically the ones that benefit from all these regulations are big corporations and their teams of lawyers, lobbyists, and accountants. They’re the only ones who have the resources to untangle the mess and survive it. This drift away from freedom can be reversed, and quickly within a matte of a few years….Because it’s an economy of mind, the future can change as fast as minds can change. The opportunity for dynamic growth exists not only in the US, but all over the world if we’re only courageous enough and free enough to seize it.”
“Socialist and totalitarian Governments are doomed to support the past, because creativity is unpredictable, it is also uncontrollable. If the politicians want to have central planning and command, they cannot have dynamism and life. A managed economy is almost by definition a barren one. “
“Knowledge is about the past; Entrepreneurship is about the future regulations are rules based on past experience. Regulators are political appointees responsive to their bosses and to the rules. Only entrepreneurial owners taken their cues from the subtle signals on the crests of creation.”
“Under capitalism, economic power flows not to the intellectual, who manipulates ideas and basks in their light, but to men who gives himself to his ideas and tests them with his own wealth and work.”
“The real issue is between the rule of law and the rule of leveler egalitarianism, between creative excellence and covetous “fairness”, between admiration of achievement versus envy and resentment of it.”
“The leading enemy and obstacle for accomplishment throughout the ages is the philosophy of victimization and socialist redistribution.”
In my opinion Wealth and Poverty is a must read, not only because it will expand your mind, but also because his writing style will be pleasing to your ear buds.
The release of the new book, 13 Hours: The Inside Account Of What Really Happened In Benghazi, a first hand account by the security operators who were on the ground fighting in Benghazi, tells us they were given an order to stand down and not go help at the State Department Compound that was under attack on 9/11/12. They don’t know how far up the chain of command the order came from. They disobeyed and went anyway after they were delayed. I saw these three men interviewed on Fox News (here).
I watched this interview thinking only of the comment that Secretary of State Hillary Clinton made at the Senate hearings about Benghazi in January of 2013, “…the fact is we have four dead Americans. Was it because of a protest, or was it because it was guys out for a walk one night who decided to go kill some Americans. What difference, at this point, does it make?”
I think this question by Secretary of State Clinton is “the” question that we should be thinking about. Mrs. Clinton, you are correct, “at this point”, in January 2013, the question of how this truly happened “doesn’t make a difference” from a political standpoint. The truth about Benghaze only had major political significance if would have been told before the November election in 2012, and quite possibly it “could have made a difference”. And that’s the whole point. Gaining, or remaining in, the seat of Government power, through the political process, is the most important thing to politicians. And everything, including the lives of individuals, is to be sacrificed at the alter of politics.
HUMAN ACTION EXPLAINS POLITICAL ACTION
I wrote an article titled, Mises’ “Human Action” Explains Lies About Lybia, that sums up the thinking of politicians. Here are some excerpts from the article that are even more true today than when I wrote them in October 25th 2012. Here are excerpts from the article.
“Here is how “Human Action” by Ludwig von Mises helps us analyze the Libyan situation. Human action is purposeful behavior. Action is not simply a verbal preference, it is the individual choosing and acting to reach a particular end. Action is a tangible thing and cannot be confused with wishes, hopes, or after the fact quarterbacking. Men act to substitute what they think will be a more satisfactory state of affairs for a less satisfactory state. We wouldn’t want to change our existing state of affairs if we didn’t think the result would be better. Our action reveals the correctness of our thinking. When a baseball manager makes a decision during a game he does it because he thinks it will help his team win the game. After the fact we can judge if his decision was correct or incorrect in attaining his goal, but that doesn’t mean we would have made a different or better decision than he did, because we cannot recreate that point in history exactly as it was. The science of human action is called praxeology it studies the action itself. Psychology studies the internal events that result in action. It studies the forces pushing a man toward a particular action. Psychology is where Monday morning quarterbacking takes place. Praxeology is where we can analyze success and failure. Lets look at Libya through these lenses.”
“Every Administration has the right to make its own policy about how heavy of a security footprint it will have at any one embassy. You can argue about which policy will achieve the particular goal an administration wants to achieve. What that particular goal is, may be misunderstood. For some administrations the goal is the safety of the people in the Embassy. For others the goal is what the people in a particular country will think if too much power is shown. There are obviously many degrees of security between completely locking down an embassy with every asset you can bring to bear, and simply allowing the people at the embassy to carry a sidearm. There are many foreign policy goals each administration is trying to attain, and security for their people may be sacrificed for these goals. The choice the administration makes is up for discussion and debate before anything happens. After the decision proves to be incorrect, we can say it didn’t work to achieve the end sought, assuming we knew the true goal of the administration beforehand. The end sought may not have been the security of the people. We can say the Obama Administration’s decision in Benghazi didn’t work from a security standpoint, just as we can say the Reagan Administration’s decision in Beirut didn’t work from a security standpoint. But we don’t really know if security was the primary goal in either situation.”
“What we know is that all politicians are self-interested individuals, and remaining in power is their main goal. This is the over-riding goal of every decision they make. They hire advisers to specifically look at everything they do and determine how it will affect them politically. If it is not the over-riding factor in decision-making, it certainly has a major influence in all decisions. This is my problem with the deaths in Libya. From the standpoint of security it was a failure, fine admit it and adjust. When you know what was going on within an hour of the start of the attack, and you put forth a story that’s untrue, and stick with it for weeks even as the truth starts to leak out, it tells me you have no other interests above yourself. You denigrate the lives of the fallen, you insult our intelligence, and you erode whatever trust remains, which is probably a good thing for liberty.”
“Every action that has been taken since the attacks began, is purposeful action toward the attainment of a more satisfactory state of affairs. Every lie told and photo-op taken was an attempt to reach a particular end, this is the science of human action. Since the situation was and is constantly changing, each day’s purposeful actions seemingly contradict the previous day’s purposeful actions. This contradiction only makes sense if we know the true ends sought. The end sought is to hold on to power through any means necessary. The administration believes their purposeful actions will result in them holding on to their power. We will find out in two weeks if their purposeful actions are correct or incorrect.
POLITICAL SPIN, AKA. LYING.
Parents of the fallen have said that Hillary Clinton told them, a video was responsible for the attacks, and she vowed to have the film maker arrested and prosecuted, read here. She told them this at a ceremony the day the bodies arrived at Andrews Air Force Base. If she lied in a situation where there were dead bodies and grieving families, wouldn’t she, and all politicians, lie to protect their own political power in every situation? They probably lie about trivial things in order to keep their skills sharp for the big things like Benghazi.
This is why I hate politics. The incentive to gain power or to remain in power overrides everything from a political perspective. Politics interferes with everything, and I mean everything, concerning our daily lives. We are being spun, or lied to, everyday. We can be inoculated from the spin, or lies, if we understand the concept of Human Action, and see all things through its lens.
The pen is mightier than the sword… (Photo credit: mbshane)
Anti-Obama Care Practice Booms, Along With A Growing Network Of Market Based Providers, by Mark J. Perry, at aei-ideas.org. As I’ve said before, Obamacare is going to create a true free market in health care because the patient and the doctor will not a have a third-party payer to screw up the price system. Competition will lower prices and raise the quality. We will end up with two healthcare systems, one will be a free market system and the other will be a government-run system consisting of Medicare, Medicaid, Obamacare, and the VA.
NY Farm Yanks Wedding Ceremonies After $13 Thousand Fine For Refusing Lesbian Wedding, William Bigelow, at brietbart.com. Two things I have a hard time understanding about this situation. 1) Why is the owner of property, in this case the wedding service, forced to “voluntarily” provide this service. If they make the decision to not sell their service to someone, they should suffer the consequences of that decision, not be forced to make the trade. 2) Why would you use Government to force someone to do business with you when they don’t want to? Do you have the right to the another persons approval? And what is their approval worth if it isn’t given voluntarily?
Asian Property Prices Are Falling, “As If There Is A Global Financial Crisis“. at zerohedge.com. Another example of malinvestment created by central banks. The liquidation process is the cure for the previous malinvestment. Unfortunately Governments aren’t going to let this cure happen. They will try to artificially prop up the previous malinvestments, using more counterfeit money and keeping interest rates low, so the pain of the liquidation can pushed off to some date in the future.
If Police Come To Your Door Without A Warrant, Shut Them Down Like This Guy, by Matt Agorist, at thefreethoughtprogect.com. The police can legally lie to gain access to your home. Don’t let them in without a warrant. Government agents have used up all of the good intention chips they may have once had.
The recent bashing of Burger King about their merger with Tim Hortons is nothing more than political theater being staged for the upcoming November elections. The political strategy of: divide us into as many groups as possible, pit us against each other using propaganda, and set up the false narrative that Government is the only solution to the made up problem is in full swing. In this case it’s the usual tried and true tactic of the haves vs. the have-nots.
POLITICAL PROPAGANDA / HOME OF THE WHOPPER
A corporate tax inversions is simply a corporation merging with an overseas company from a country that has a lower tax rate. The President has been propagandizing inversions lately for political reasons. If you don’t believe me watch this short video ( if you can get through the first minute). The words used, the tone of his voice, and the misinformation in this video would make Joseph Goebbels envious.
Tactics like this aren’t new. In May of 2013 Apple was brought in front of a Homeland Security and Government Affairs Committee hearing to be lambasted about their tax practices. These hearings are always political theater. But in this case something different happened. Senator Rand Paul took the unpopular stance of defending Apple.
Which video do you believe is factually true of just a piece of propaganda. We have to be able to sift through the propaganda and rhetoric of both sides in order to get to the truth.
TAX INVERSION MATHMATICS
The Federal Government will collect $20 billion less in tax revenue over a decade if tax inversions aren’t halted (read here). That’s only $2 billion a year out of a $3.7 trillion yearly Federal budget, or .001 percent of the budget. If you add the fact that the Fed is still printing $25 billion a month, you see the insignificant amount of money involved. Politicians will propagandize inversions by saying, “this will ‘cost tax payers’ blah blah blah”, or something about corporations, “trying to avoid paying their fair share”. This is purely political posturing through propaganda.
PERVERSE BED FELLOWS
Here is an article titled, Buffett Burger King Funds Flip Obama’s Inversion Calculus. It is interesting to see all the corners these crony capitalists and politicians get paint into because of their incestuous relationship with each other. Here are some excerpts.
“Billionaire Warren Buffett was an ally of President Barack Obama during the 2008 presidential campaign and the force behind Obama’s “Buffett Rule,” designed to increase tax bills for the wealthiest Americans. Now, the second-richest man in the U.S. has dented Obama’s effort to stamp out corporate inversions.”
“The danger for Democrats is that Buffett’s investment in the burger-fries-and-a-Coke company’s inversion might flip that calculation and make it politically easier for other corporations to follow suit without suffering repudiation from the public or the White House.”
“That’s because Buffett in the past has served as a sort of unofficial adviser to Obama on business and financial matters, someone whose stamp of approval has offered political cover when the president has been accused of being anti-business or of unfairly targeting the wealthy….If Obama were to question the Burger King deal publicly now, it would mean putting himself at odds with Buffett.”
“I proposed closing this unpatriotic tax loophole for good,” Obama said in his weekly address on July 26. “Rather than double-down on the top-down economics that let a fortunate few play by their own rules, let’s embrace an economic patriotism..”
“…Treasury Secretary Jacob J. Lew called on Congress to pass a law requiring that foreign shareholders account for 50 percent of the ownership of a new merger between a U.S. company and a foreign one … The administration wants that change made retroactive to May…. legislation taking effect after the president signs it into law — could have the perverse effect of encouraging corporations to act more quickly, negotiate new deals and rush to close those transactions before the bill is enacted,” Lew wrote. “It would be a mistake for Congress to pass anti-inversion legislation that creates a race against the clock and encourages more, not fewer, inversions.”
I want to disinfect myself after reading that.
GEORGE McGOVERN: FREE MARKET CONVERT?
Former Senator and 1972 Democratic Presidential nominee George McGovern talked about his experience dealing with Government regulations and mandates after he retired from politics and became a business owner, in this article titled What I Know Now: Nibbled To Death. Here are a few excerpts from the article.
“The second lesson I learned by owning the Stratford Inn is that legislators and government regulators must more carefully consider the economic and management burdens we have been imposing on U.S. business.”
“….if I were back in the U.S. Senate or in the White House, I would ask a lot of questions before I voted for any more burdens on the thousands of struggling businesses across the nation….. I would ask whether specific legislation exacts a managerial price exceeding any overall benefit it might produce. What are the real economic and social gains of the legislation when compared with the costs and competitive handicaps it imposes on businesspeople?”
“…While running my struggling hotel, I never once missed a payroll. What happens to the people who counted on that, and to their families and community, when an owner goes under? Those questions worry me, and they ought to worry all of us who love this country as a land of promise and opportunity.”
I think this article was written around 1993. If Senator McGovern thought regulations and mandates were bad then, what would he think about them if he were alive today. Senator McGovern was a big Government leftist, but he realized at some point regulations and mandates destroy economic activity. [Or did he just want regulations to be at a level in which his business could survive? Would he have written this this article if regulations weren’t at a level that affected his business? His business just happened to be the submarginal business, what if it had been the supramarginal business?}.
CONCLUSION
“The economy” is what results when each individual is free to make decisions on what to produce, consume, save, or exchange according to what he values at any particular time. Outside of protecting property rights, contracts, and torts: government interventions hamper the decision-making by individuals, by definition hurting the economy.
Government intervention substitutes the decisions of individual politicians and bureaucrats, for the decisions of free individuals in the market, creating a lower overall standard of living, and individuals who are less satisfied.
Politicians are always performing in the political theater, because they realize that the political process is the only way they can get in positions of power to enforce their superior wisdom on the masses. We have to realize this, and be able to weed out the propaganda from the facts if we are going to be able to turn the big Government ship around.
The pen is mightier than the sword… (Photo credit: mbshane)
Tattoo Removal Business Booming As Inked Up Teens Grow Up, by Sophia Harris, at cbc.ca.com. This shows value is subjective. Not only do different people value the same thing differently at different times, the same person values the same thing differently at different times. The tattoo hasn’t changed it is the same as when the person got it, The only thing that has changed is the value the person places on the tattoo at a different time. I always thought this could be a viable business one day. For some people tattoos are monuments to the ignorance of their youth.
Watch 11 Member SWAT Team Raid The House Of A 68-Year Old Grandmother Using Stun Grenades, by Mark J. Perry, at aei-ideas.org. This video shows why the respect for law enforcement is tanking. When a situation like this happens all cops are painted with this broad brush. When citizens resist orders given by cops citizens are painted with this broad brush by cops. The lack of trust on both sides escalates and we reach a point where cooler heads will never prevail, because neither side can back down. What is the answer? Our politicians and bureaucrats have to be held accountable by the law, or citizens won’t comply.
Students Irate Over Food Bully Michelle Obama, by Chris Rossini, at economicpolicyjournal.com. Chris Rossini hits the nail on the head with this comment, “After eating their rations, the kids are forced to sit through hours of why Leviathan is so great and important“. Also this, Junk Food Fights: Students Tee Off On Michelle Obama, at vocativ.com. Kids are using social media to show their disdain for being told what to eat.
The War On Ridesharing, at economicpolicyjournal.com. The market will eventually win against the status quo monopoly.
The Guy Who Tutors Kids On Skype For $1000 An Hour, by Caroline Moss, at economicpolicyjournal.com. This is the future of education. The most talented teacher in a particular field can teach every student in America by using the internet. In the past the best teacher in a particular field could only teach the students who were taking his classes every day.
What Is Obama Doing With All Those Multi-Billions In Bank Fine Money? at economicpolicyjournal.com. Here is the two most important points in the article, 1) “Now, I strongly believe that individuals who broke the law and deliberately wrote bad mortgage securities should be punished….corporations are different from individuals. So bust the individuals. Don’t crush investors. And finally end Too Big to Fail.” 2)”.. no one even remotely knows how these penalty-payment numbers are calculated. And the federal government’s disbursement of these funds is equally mysterious…. a lot of money has gone to states run by Democratic governors.” Why does this money go to the State and not to the victims of the crime?
The Real Retail Story: The Consumer Economy Remains At A Recessionary Level, at zerohedge.com. If production comes before consumption, there can be no such thing as a consumer economy. There is only a production economy. The ability to consume can only come from production. If consumption is at recessionary levels, than production is at recessionary levels. The Fed has destroyed the production economy by electronically printing counterfeit money and artificially keeping interest rates at zero percent.
The Media And The Mob, by Thomas Sowell, at jewishworldreview.com. Dr. Sowell weighs in on the Ferguson situation as only he can.
Understanding the role capital goods play in an economy is important, but understanding the process of producing capital goods is more important. Using capital goods allows individuals to become more productive over time. Capital goods are scarce, they don’t magically appear. Present consumption has to be foregone to save the resources and time needed to produce capital goods. The foundation of the advance in the worlds material standard of living is due to the capital structure that has evolved over time. The two articles below explain Capital Theory using analogies that are simple to understand. The first by Mark Tovey is from this week, and the second is by Robert P. Murphy and is from Oct. 2008, which was in the middle of the economic crisis.
“The adoption of ever-more roundabout and convoluted production processes is, paradoxically, the hallmark of economic development. This is not, of course, because time-consuming methods are inherently more productive. If that were the case, we could increase output by simply working more slowly!…..roundabout methods are immensely more productive than their labor-intensive counterparts, hence it is why the more complex methods have come to replace the labor-intensive ones in the developed human economies of the world.”
“In the process of economic growth, saving is crucial. No matter how ingenious the individuals comprising a society, if the means to forgo present consumption are unavailable, capital goods simply cannot be created. Crude, labor-intensive methods of production will then necessarily be employed,”
“The basic Austrian story is that during the artificial boom, workers’ labor and other resources get channeled into investment projects that aren’t compatible with the overall level of real savings. Sooner or later, reality rears its ugly head, and the unsustainable projects have to be abandoned before completion. Entrepreneurs realize they were horribly mistaken during the boom, everybody feels poorer and slashes consumption, and many workers get thrown out of jobs until the production structure can be reconfigured in light of the revelation.”
“As our simple story illustrates, in modern economies workers use capital goods to augment their labor as they transform nature’s gifts into consumption goods. Because of the time structure of production, it is possible to temporarily boost everyone’s consumption (with Government or Fed stimulus), but only at the expense of maintaining the capital goods, which are thus “consumed.” At some point, engineering reality sets in, and no “stimulus” policies can prevent a sharp drop in consumption.”
Is the economy growing, or shrinking? Looking for answers to this question by listening to political rhetoric won’t help you find the answer. Politicians will always state the opposite of what their opponents assert about the economy, and will propagandize economic data in an attempt to prove these assertions. Like a pawn on a chess board, the economy will be sacrificed at the expense of winning a political power game. Politicians preface comments about the economy by stating; “economists say” or “economists agree”, in order to prove their political position related to the economy.
ECONOMIC EXPERTS
These “economic experts”, cited by politicians, either work for the Fed, the Congressional Budget Office, the R and D parties, think tanks, or write op-eds for the NY Times. These “experts” are always talking in terms of an economy improving, growing, or healthy, on the one hand or getting worse, shrinking, or weak on the other. We should be weary about these “experts” pronouncements, because the question isn’t, is the economy growing or shrinking, the real question is, how can anyone have enough knowledge to know where the economy should be at any particular moment?
WHAT IS AN ECONOMY
The simple answer to the question, where should the economy be, is very simple: exactly where it is. To understand this we first have to know what an economy is. An economy is what results when each individual makes decisions on what to produce, consume, save, or exchange. The economy is never stationary it is constantly changing, because what each individual values related to production, consumption, saving, and exchange, is constantly changing. Economic forces are constantly in play adjusting the economy to these new changes based on what individuals value. The economy can never be measured at one particular point in time. The economic data that the experts look at is essentially an inaccurate report about what has happened in the past. This economic data is the placing of a numerical total on individual economic activity, but it says nothing about the individual activity. It’s like trying to understand a three-dimensional world by only using length and width. How can you know what a sphere is, if the only thing you understand is a circle? Think if you had to make decisions about the D-Day invasion if all you received was information on its progress every ten hours. You would make very different decisions than if you knew in real-time what was happening. Now think if you had to make decisions about D-Day with inaccurate information that is transmitted every ten hours. Your chances of making a good decision are nearly impossible. Trying to make decisions about the economy is much more difficult because there are many more constantly changing variables.
CENTRAL PLANNERS ARROGANCE
All these “experts”, whether they’re liberal or conservative, or whether they’re for central planning or free markets, think their particular policies can produce a growing economy. These “experts” aren’t just arrogant enough to think they know best how much the economy should be growing or contracting, they also think their policies can make it happen. They think that the decisions of hundreds of millions of people on what to produce, consume, save, and exchange, should be ignored and replaced by their decisions on what they value. Does more knowledge exist about what should be produced, consumed, saved, and exchanged in the millions of decisions made daily by millions of individuals, or does more knowledge exist in the decisions made by “experts” after they analyze false ex post facto data about these millions of decisions?
CONCLUSION
In a free market economy the economy is at any moment exactly where it should be. Whether it is growing of shrinking doesn’t matter because it reflects what millions of people value based on every decision they make. When “experts” intervene in the economy through regulations, taxes, electronically printed counterfeit money, etc, these interventions are factored into the process individuals use to decide what to produce, consume, save and exchange. Even with all of these interventions the economy is exactly where it should be at any given moment. It should be no surprise that interventionist policies, by politicians and bureaucrats, can’t produce the outcomes these planners had hoped for, they were doomed from the start. Not only because the knowledge they receive is useless, it is also late. But instead of repealing their policies, central planners try to fix the outcome brought about by their previous interventions, by proscribing new interventions. They are trying to cure the symptom instead of the problem.
The only way these interventions have a chance of working is if they were made by a totalitarian regime. But even in a totalitarian regime, individuals still have a choice on what they will produce, consume, save, and exchange. Even though the Soviet Union had all of the power to enforce its edicts, they couldn’t make central planning work. The Soviet Union’s economy, at any given time, was exactly where it should have been, even at the point when it collapsed. So don’t vote for politicians who want to steer the decisions of individuals. Allow individuals the freedom to make unhampered decisions about what they produce, consume, save, and exchange, even if you don’t like the outcome of these decisions. The result will be the optimum amount of satisfied individuals that can possibly be achieved in a world ruled by scarcity and subjective value.
"THE COORDINATION OF MENS ACTIVITIES THROUGH CENTRAL PLANNING OR THROUGH VOLUNTARY COOPERATION ARE ROADS GOING IN VERY DIFFERENT DIRECTIONS, THE FIRST TO SERFDOM AND POVERTY THE SECOND TO FREEDOM AND PLENTY."
"THERE IS NO SUBTLER, NO SURER MEANS OF OVERTURNING THE EXISTING BASIS OF SOCIETY THAN TO DEBAUCH THE CURRENCY. THE PROCESS ENGAGES ALL THE HIDDEN FORCES OF ECONOMIC LAW ON THE SIDE OF DESTRUCTION, AND DOES IT IN A MANNER WHICH NOT ONE MAN IN A MILLION IS ABLE TO DIAGNOSE."
Most Recent Quote
F.A. Hayek - "Since the value of freedom rests on the opportunity it provides for unforseen and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom."
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Matthew McCaffrey - "Building a freer society means winning the battle of ideas, not the empty contests put on by the central Government every four years. Freedom is never obtained by endorsing the least offensive applicant for the position of chief villain."
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Ludwig von Mises - "The middle system of property that is hampered, guided, and regulated by government is in itself contradictory and illogical. Any attempt to introduce it in earnest must lead to a crisis from which either Socialism or Capitalism alone can emerge."
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F. A. Hayek - "While it may not be difficult to destroy the spontaneous formations which are the indispensable bases of a free civilization. It may be beyond our power deliberately to reconstruct such a civilization once these foundations are destroyed."
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Murray Rothbard - "The market promotes and rewards the skills of production and voluntary cooperation. The Government enterprise promotes the skills of mass coercion and bureaucratic submission...and those who get to the top will be those with the most skill in that particular task."
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John Adams - "Government is instituted for the common good: for the protection, safety, prosperity, and happiness of the people. And not for profit, honor, or private interest of any one man, family, or class of men..."
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Milton Friedman - "Underlying most arguments against the free market is a lack of belief in freedom itself."
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Chris Rossini - "The state is a monster that destroys. Those who gain control of the levers, choose the targets."
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Murray Rothbard -"It is no crime to be ignorant of economics...but it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance."
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Murray Rothbard -"Democracy can be only a possible route toward a free society rather than an attribute of it. In a purely free society there would be nothing for democratic electors to vote about."
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Robert Bradley Jr. - "When Government tries to pick winners and losers, it typically picks losers. Why? Because the Free market consumers pick winners to leave the losers for Government."
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Benito Mussolini - "Fascism should more appropriately be called corporatism because it is a merger of state and corporate power."
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Ludwig von Mises - "Men must choose between the market economy and socialism....some agency must determine what should be produced. If it is not the consumer by means of demand and supply on the market, it must be the Government by compulsion."
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F. A. Hayek - "The curious task of economics is to demonstrate to men how little they really know, about what they imagine they can design."
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Detlev Schlichter - "Any intervention in the market (by the state) must direct resources away from how private owners would have employed them and toward how state officials and their economic advisers would like to see them employed."
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Henry Hazlitt - "The question is not whether we wish to see everybody as well off as possible....the real question concerns the proper means of achieving it. And in trying to answer this we must never lose sight of a few elementary truisms. We cannot distribute more wealth than is created. We cannot in the long run pay labor as a whole more than it produces."
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Murray Rothbard - "Whether or not man lives at the level of poverty or abundance depends upon the success that he and his ancestors have had in grappling with nature and in transforming naturally given resources into capital goods and consumers goods.... Free markets tend to lead to abundance for all of its participants.... violent intervention in the market and a hegemonic society tend to lead to general poverty."
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Ludwig von Mises - "Inflation and credit expansion are the means to obfuscate the fact that there prevails a nature-given scarcity of the material things on which the satisfaction of human wants depends. The main concern of capitalists private enterprise it to remove this scarcity as much as possible and to provide a continuously improving standard of living for an increasing population.....but however remarkable these improvements may be, there will always be a strict limit to the amount that can be consumed without reducing the capital available for the continuation and, even more, the expansion of production."
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Ludwig von Mises - " It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of Governments. Ideologically, it belongs in the same class with political constitutions and bills of rights."
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Murray Rothbard - "To reduce the working population while the consuming population remains undiminished is to lower the standard of living."
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Murray Rothbard - "Increasing the money supply confers no social benefit. It relieves no economic scarcity. It simply benefits some at the expense of others."
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Ludwig von Mises - "Political ideas that have dominated the public mind for decades cannot be refuted through rational arguments, they must run their course in life and cannot collapse otherwise than in great catastrophe."
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Milton Friedman - "A society that puts equality- in the sense of equality of outcome- ahead of freedom will end up with neither equality nor freedom. The use of force to achieve equality will destroy freedom, and the force introduced for good purposes, will end up in the hands of people who use it to promote their own interests."
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F. A. Hayek - "It has already been suggested that it is not necessary, for the working of this free market capitalist system, that anybody should understand it. But people are not likely to let it work if they do not understand it."
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C. S. Lewis - "Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber barons cruelty may sometimes sleep, his cupidity may at some point be satiated; But those who torment us for our own good will torment us without end for they do so with the approval of their own conscience."
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Ludwig von Mises - "For the naive mind there is something miraculous in the issuance of fiat money. A magic word spoken by the Government creates out of nothing a thing which can be exchanged against any merchandize a man would like to get."
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Ludwig von Mises - "Many think that governments are free to achieve all they aim at without being restrained by an inexorable regularity in the sequence of economic phenomena....they maintain that the state is God."
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George Gilder - "Under capitalism, economic power flows not to the intellectual, who manipulates ideas and basks in their light, but to men who gives himself to his ideas and tests them with his own wealth and work."
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Thomas Sowell - "Perhaps the greatest achievement of market economies is in economizing on the amount of knowledge needed to produce a given economic result. That is also their greatest political vulnerability."
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Ludwig von Mises - "Anti capitalistic policies sabotage the operation of the capitalist system of the market economy. The failure of interventionism does not demonstrate the necessity of adopting socialism. It merely exposes the futility of interventionism. All those evils which the self-styled "progressives" interpret as evidence of the failure off capitalism are the outcome of their allegedly beneficial interference with the market."
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F.A. Hayek - "The battle for freedom must be won over and over again, the socialists of all parties must be persuaded or defeated if they and we are to remain free men."
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F. A. Hayek - "Planning, or central direction of economic activity, presupposes the existence of common ideals and common values; and the degree to which planning can be carried is limited to the extent to which agreement on such a common scale of values can be obtained or enforced."
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Thomas Sowell - "In political competition accurate knowledge has no decisive competitive advantage, because what is being sold is not an end result but a plausible belief about a complex process"
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Thomas Sowell - " Taxing away what other people have earned, in order to finance one's own moral adventures via social programs, is often depicted as a humanitarian endeavor, while allowing others the same freedom and dignity as oneself, so that they can make their own choices with their own earnings is considered pandering to greed. Greed for power is no less dangerous than greed for money, and has historically shed far more blood in the process."
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Peter Earle - "In a world of infinate desires and limited means, choices must be made; a study of history and economics reveals that, while markets make no promises, they never lie. The only choice is whether distribution, or redistribution as the case may be, is to be accomplished by the organic, apportioning hand of the price system, or by the corrupt, spoilative claw of states."
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Thomas Jefferson - "....To preserve our independence, we must not let our rulers load us with public debt....we must make our choice between economy and liberty or confusion and servitude....if we run into such debts, we must be taxed in our meat and drink, in our necessities and comforts, in our labor and in our amusements.... if we can prevent the Government from wasting the labor of the people under the pretense of caring for them, they will be happy."
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F. A. Hayek - "The democratic statesman who sets out to plan economic life will soon be confronted with the alternative of either assuming dictatorial powers or abandoning his plans."
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Jean Baptiste Say - "...The encouragement of mere consumption is no benefit to commerce, for the difficulty lies in supplying the means, not in stimulating the desire of consumption; and we have seen that production alone, furnishes those means. Thus, it is the aim of Good Government to stimulate production, of bad Government to encourage consumption."
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Ludwig von Mises - "The middle-of-the-road policy is not an economic system that can last. It is a method for the realization of socialism by installments."
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Thomas Sowell - "What is politically defined as economic planning is the forcible superseding of other people's plans by Government officials."
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Thomas Sowell - "The market is simply the freedom to choose among many existing or still to be created possibilities. The Government establishes an army or a post office as the answer to a given problem.... The diversity of personal tastes insures that no given institution will become the answer to a human problem in the market."
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Thomas Sowell - "Just as a poetic discussion of the weather is not meteorology, so an issuance of moral pronouncements or political creeds about the economy is not economics."
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Paul Craig Roberts - "We should all be thankful to the Soviets, because they have proved conclusively that socialism doesn't work. No one can say they didn't have enough power or enough bureaucracy or enough planners or they didn't go far enough."
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Alexis de Tocqueville - "Democracy extends the sphere of individual freedom, socialism restricts it. Democracy attaches all possible value to each man, socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality, but notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude."
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George Gilder - "The Real Issue is between the rule of law and the rule of leveler egalitarianism, between creative excellence and covetous "fairness", between admiration of achievement versus envy and resentment of it'.
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Thomas Jefferson - "The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite."
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Judge Leonard Hand - "Liberty lies in the hearts of men and women; if it dies there, no constitution, no law, no court can save it."
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Ludwig von Mises - "Modern civilization is a product of the philosophy of laissez faire, it cannot be preserved under the ideology of Government omnipotence."
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Ludwig von Mises - "The issue is always the same: the government or the market. There is no third solution."
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H.L. Menken - "Government is a broker in pillage, and every election is an advance auction on the sale of stolen goods"
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F.A. Hayek - "Perhaps the fact that we have seen millions voting themselves into complete dependence on a tyrant has made our generation understand that to choose one's Government is not necessarily to secure freedom."
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Detlev Schlichter - "Economics is the science of how we use social institutions such as private property and voluntary exchange on free markets to make the best use of scarce resources. The printing press tries to do away with scarcity."
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Thomas Sowell - "The God like approach to social policy ignores the diversity of values and the cost of agreement among human beings."
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Henry Hazlitt - "Whenever men are allowed liberty, and freedom of choice, they will make mistakes. Liberty is not a guarantee of omniscience. But neither are the mistakes of free men a valid excuse to take away their liberty, and impose Government controls in its stead, on the ground that all wisdom and disinterestedness resides in the people who are going to do the controlling."
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Thomas Sowell - "Nothing is easier than to confuse broader powers with deeper insight. But almost by definition, those with the broadest powers are the most remote from the specific knowledge needed for either deciding, or for knowing, the actual consequences of their decisions."
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Ludwig von Mises - "Credit expansion is the Government's foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether to finance lavish Government spending."
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Ludwig von Mises - "Economic history is a long record of Government policies that failed because they were designed with a bold disregard for the laws of economics."
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Chaderov - "Since the State thrives on what it expropriates, the general decline in production that it induces by it's avarice foretells its own doom. Its source of income dries up. Thus in pulling society down it pulls itself down."
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Thomas Sowell - "If an informed citizenry is the foundation of democratic Government, than an uninformed citizenry is a danger."
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Thomas Sowell - "The free market works best when there is a level playing field but politicians win more votes by tilting the playing field to favor particular groups."
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Thomas Sowell - "However dramatic or attractive a particular vision may be, ultimately everyone must live in the world of reality. To the extent that reality has been filtered to fit a vision, this filtered information is a misleading guide to making decisions in an unforgiving reality, to which we must all adjust because it is not going to adjust to us."
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Thomas Sowell - "Envy was once considered to be one of the seven deadly sins before it became one of the most admired virtues under its new name "Social Justice"."
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Murray Rothbard - "Bureaucracy incompetent enough to plan a stationary system, is vastly more incompetent at planning a progressing one."
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Ludwig von Mises - "Freedom is incompatible with equality of wealth and income. Men are born unequal and it is precisely their inequality that generates social cooperation and civilization."
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Murray Rothbard - "Government subsidy systems promote inefficiency in production and efficiency in coercion and subservience, while penalizing efficiency in production and inefficiency in predation (plundering)."
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Francisco Capella - "The right of property is a negative right of noninterference. Humans do not have natural positive rights that imply that others must do something for them, and there is no natural duties towards others (present and future). Positive rights and duties arise by means of contracts."
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Victor Davis Hanson - "Social justice sees the Government's proper moral obligation not as ensuring equality out of the starting gate, but as guaranteeing that we will all reach the finish line at the same exact moment."
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F.A. Hayek - "A claim for equality of material position can be met only by a Government with totalitarian powers."
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Thomas Sowell - "People who are very aware that they have more knowledge than the average person are often very unaware that they do not have one tenth of the knowledge of all of the average persons put together. In this situation, for the intelligentsia to impose their notions on ordinary people is essentially to impose ignorance on knowledge."
"Credentialed ignorance is still ignorance."
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Thomas Sowell - "People have to be aware of the dangers in letting economic decisions be made through political processes."
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Winston Churchill - "Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."
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George Gilder - "Socialist and totalitarian Governments are doomed to support the past, because creativity is unpredictable, it is also uncontrollable. If the politicians want to have central planning and command, they can not have dynamism and life. A managed economy is almost by definition a barren one.
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George Gilder - "The ambitious agenda of contemporary liberalism simply ensures that Government will do nothing well, except to expand itself as an obstacle of growth and innovation. Government best supports the future by refraining as much as possible from trying unduly to shape it."
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Francisco Capella - "Markets are never perfect because human beings are limited in their abilities; proposing state fixes to alleged problems that individuals cannot solve freely seems to forget that the state is also made up of humans; and perhaps not the best ones. ( Bureaucrats are not disinterested angels, and the worst might get to the top.)"
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George Washington - "Government is not reason, it is not eloquence, it is force, like fire it is a dangerous servant, and a fearful master."
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Thomas Jefferson -- "I think we have more machinery of Government than is necessary, to many parasites living on the labor of the industrious."
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Thomas Jefferson -- "I sincerely believe with you that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, it's but swindling futurity on a large scale."
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Thomas Jefferson -- "The two enemies of the people are criminals and Government, so let us tie the second down with the chains of the constitution so the second will not become the legalized version of the first."
AUSTRIAN ECONOMICS ADDICT 