My Two Cents - "Election Eve Observations"

11/5/2012

This is not a political publication, has never been, never will be. However, I do spend a reasonable amount of this effort analyzing policy and unfortunately, that tends to suggest that I’m open to a discourse of the individuals behind those policies. I am not. By and large political discussions are unprofitable because people are dogmatic to a fault. The idea of the ‘undecided’ voter is probably the biggest joke in all of statistical and polling history. It compares nicely to the concept of the undecided juror in the O.J. Simpson case back in 1994. Everyone had an opinion on whether O.J. was guilty or not. There were no ‘undecideds’.

So instead, tonight, as you dodge phone calls from PACs from A to Z, I’m going to provide some light reading, a little levity, and some historical perspective along with some very timely quotes to hopefully help you to keep all of the nonsense in perspective.

I’m going to use some bad words in this column. Words like Constitution, founding fathers, and personal responsibility. These words have been branded ‘bad’ by a media run amok in recent decades and have been deemed to be politically incorrect. Here’s to political incorrectness!

Thomas Jefferson was perhaps the wisest of our founding fathers (bad word #1) when it came to matters of a fiscal and economic nature, which might be considered odd, given that he was a lawyer. This reality strips the excuse from the bulk of our legislators today who say they aren’t economists. Jefferson, with a few timely observations of human action, laid waste to today’s plethora of computer-driven economic models, sub-committees, and bureaucratic overhead. He had a unique tact for getting to the meat of the matter. Who says it is bad to be blunt?

Government: The Least Effective Economic Agent

I bring up Jefferson because he accurately described the current state of affairs in America:

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

Does this not sum up perfectly the trend of the period since the Great Depression? There has been one welfare program after another, and the kicker is the two major parties have BOTH done the damage, which is much to the contrary of what many folks believe. The only thing worse than passing a bad law is a failure to repeal it. Period. End of story. And we’ve been doing just that – since the 1930s. Party A passes a terrible law, Party B bashes Party A, then when Party B gets into power, the law stands. Or even worse, Party B adds to the law and makes it even worse. Wash, rinse, repeat and you’ve got America 2012. They tried the same thing in Europe and it failed miserably. Now they’re making it worse by refusing to recognize the failure. The definition of insanity is doing the same thing over and over and expecting a different result. Not going to happen folks.

One must only spend a few minutes on their favorite search engine to discover the vast magnitude of government waste, much of it under the guise of ‘taking care of us’. It is the nanny state. Cradle to grave. Whatever you want to call it, but this perpetuation of a lack of personal responsibility (bad word #2) is absolutely killing this country. The welfare state lingo is even built right into the titles of the laws themselves. ‘Security’, ‘Care’, ‘Supplemental’, ‘Assistance’, and ‘Benefit’. And that is just to name a few.

Consequences of the Handout Mentality

An epic quote, generally attributed to Scottish historian Alexander Fraser Tytler:

“A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy, which is always followed by a dictatorship”

This is one of the primary reasons the United States wasn’t set up as a democracy, but rather as a Constitutional (bad word #3) Republic. Few today know the difference and history teachers, the media, and government have attempted to revise history by telling us that we have a ‘democracy’ in America.

Are we not voting ourselves generous gifts from the public treasury? Absolutely. Have we spent beyond our means and have now gone so far into debt that there is little, if any, hope of ever getting out of it? Absolutely. Who is responsible? Look in the mirror. We allow this to continue. Not only do we allow it, but we put a rubber stamp of approval on it by treating the election process in this country like a football game.

Let’s take that a step further. It isn’t just the political process. It is a nearly total lack of awareness of our government, how it works, and more importantly, what it is up to. Every so often one of these television or radio funny men will do a ‘man on the street’ type of survey. The level of ignorance of Americans is despicable. Most can’t describe the process by which a law comes into existence in this country or name even one of their US Senators, or even know how many each state has. But they can tell you so and so’s batting average or what their friend’s pet iguana had for lunch via Facebook. It’s all bread and circuses.

Again, I’ll reference the Europeans. It was all early retirement, free (insert your favorite elixir here), futbol, and parties. Until it wasn’t. The party is over. In the same manner the Europeans have fallen victim to their own greed and avarice, so too will America. This is not a ‘maybe’ or a ‘possibility’, but rather a foregone conclusion. It is concrete. You can mail it in.

Perhaps the most sobering part of Tytler’s warning is the final phrase. Every democracy will finally collapse due to loose fiscal policy, which is always followed by dictatorship. I am not sure our fiscal policy at this point could get any more loose than it already is, but I am sure that over the next four years we’re going to see someone give it the good old college try. It is the only path now. What politician is going to get elected by standing up and telling fat, dumb, and happy Americans that the party is over, they now must embrace austerity, and that the handouts are over?

And speaking of dictatorships, they are much like hurricanes. There have to be certain ingredients present for a dictatorship to develop. One of the requirements is a total leadership vacuum due to a failure of a country’s leaders to accomplish anything other than more of the same. The second is that there has to be some level of desperation amongst the people. The Treasury is broke, their world is coming unglued, and they are getting desperate for answers. Next, you need a charismatic personality who the people can embrace as a prototype ‘savior’. Whoa. Getting a little too real here isn’t it? 

Hitler’s Germany is the most popular recent example, but really studying any dictatorship in history reveals certain patterns and progressions.

Corollary to the above quote is this absolute gem by Alexis de Tocqueville:

"The American Republic will endure, until politicians realize they can bribe the people with their own money."

Notice de Tocqueville said ‘Republic’, not democracy. In today’s world, the government essentially confiscates the labor of certain economic agents and transfers the fruits of those labors to other agents. This is the ‘bribery’. And the tipping point in this whole system is when the agents who are doing the work become outnumbered by the ones who aren’t. And we’re awfully close, if not already there.

And Finally…. The Banks!

And for a grand finale, some more of Thomas Jefferson’s wisdom, this time concerning banks and his opinion of them. Seriously Thomas, next time you must tell us how you really feel:

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered."

This bit of prognostication is nearly complete in America. Bankers are already bragging about how they have taken over Europe and America. Think of the 1920s and 30s. ‘First by inflation, then by deflation’. What happened to the wealth? It was transferred. The same thing has been going on to varying degrees ever since. We had a mini-repeat of that cycle between 2000 and 2011. And speaking of homeless, how many Americans have lost their homes in these boom bust cycles? Look at the loss of home ownership during the Depression and compare it with what has gone on over the past 5 years. The private banks have depleted the issued currency to just 5% of its purchasing power nearly 100 years ago. They brazenly admit it and tell us it is necessary to achieve growth. Nonsense. That is like someone coming to your door and telling you they’re going to rob your house so you can be rich. Give me a break.

"The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Notice Jefferson uses the term ‘restored’. For something to be restored, it must have already been taken away. Article I, Section 8 of the US Constitution gives Congress the authority “To coin Money, regulate the exchange value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.

Yet, almost from the word ‘go’, the central planners within the new government tried to bring a central bank to the United States. The first two were unsuccessful and were destroyed because people had an awareness about money and how it worked. The federal reserve is the third coordinated attempt and was brought into the world like most corrupt entities: have improvised and half compromised. Due to the growing ignorance of the people about how money works, the bank has been able to survive and even thrive, regardless of the economy, the stock market, or any other circumstance. It is like a casino. In the aggregate, the house never loses.

Isn’t it ironic on election eve that the face of the President who so vehemently despised central banks and was responsible for killing off the second attempt now has his face plastered on the $20 federal reserve note? Talk about the ultimate insult; an insult that goes unnoticed by an entire country.

As for tomorrow, it might make sense to start small and find a candidate or two who actually understands some of the things highlighted above and that the Constitution (there’s that bad word again) is the law of the land no matter what the media or anyone else says. It is the standard. And I can’t help but throw in the old adage that you’ve got to stand for something or you’ll fall for anything.

Graham Mehl is a pseudonym. He is not an ‘insider’. He is required to use a pseudonym by the policies of his firm when releasing written work for public consumption. Although not an insider, he is astonishingly bright, having received an MBA with highest honors from the Wharton Business School at the University of Pennsylvania. He has also worked as an analyst for hedge funds and one G7 level central bank.

Andy Sutton is a research and freelance Economist. He received international honors for his work in economics at the graduate level and currently teaches high school business. Among his current research work is identifying the line in the sand where economies crumble due to extraneous debt through the use of economic modelling. His focus is also educating young people about the science of Economics using an evidence-based approach.